Emmanuel Daniel (ED): Yvonne Chia is group managing director and CEO of Hong Leong Bank, a mid-sized financial institution in Malaysia, and has been a professional career banker all her life. Yvonne, you started your career in 1970s with an international bank, Bank of America, and you were with that bank for a long time. And then you made the switch go going back to Malaysia where you were groomed to be first the CEO—and, I might add, the first woman CEO—of a Malaysian financial institution, RHB; and then later you joined Hong Leong Bank as managing director. Can you give me a sense of the decisions that you had to make as a regional banker, having to make choices at that point in time of history?

Today, we have a number of local institutions that are coming on stream to becoming more regional. But at that time, making the conscious decision to going back to being a leader of a domestic institution.

Yvonne Chia (YC): Thank you, Emmanuel, for having me in this conversation. Interesting question you have started off with. When I first came back to Malaysia in the early ‘90s, I had the benefit of cream of the crop training from an American bank. And I had opportunities of starting first as a young economic analyst, then becoming a credit analyst, and then an account officer, then moving to corporate finance, to marketing, and even to credit audit. I think when I came back to Malaysia, that probably put me among the top elite at that point of time, the people who had been trained internationally.

An opportunity came for me to move to a local bank. It was not an easy decision, because I knew that infrastructure at the local banks at that time was not ready. But, at the same time, I felt that it was also time to be seen to be ahead of the pack by taking what I’ve learned into the local scene. I have to tell you, when I first went down that road, I went into RHB Bank at that point of time, not as the chief executive officer. I did not even dream that actually that was the job that they had in mind for me. Actually I went in and they created a position for me called general manager, project finance and structured finance.

That was to bring my corporate structuring skills into a growing economy and see how we can find solutions for the clients. And for the first three months I had a hard time, and it was so difficult to settle down with the limited infrastructure, the limited process flow, and the relative lack of institutional governance that was quite clear cut. And I asked myself, “Did I make the wrong decision?” But being a very proud person and someone who does not take failure as an option, I told myself, “No, I’ll give myself another three months.”

The rest is history, and six months after that I was told that I was going to be made a deputy chief executive officer. And in the 11th month, I was made the chief executive officer of RHB Bank.

ED: That’s the other component of your illustrious career in that sense. You’ve been trained as a corporate banker, and you took over RHB Bank. You were essentially asked to lead what was a retail business, and a very domestic business on top of that. What were the changes that you needed to make professionally to understand retail, to understand organic growth of a very domestic institution?

YC: What you said is right in the sense that way back in the ‘90s, I would not say that Malaysian banking system was very much consumer-oriented. No, it was actually very much corporate oriented. But I think when you take the role of a CEO, the sphere of your role changes; that role requires a leader who knows how to bring in the right people for the right roles and can leverage on other people’s strengths. Even bringing people who are even paid better, for example. And for me, there was a lot of learning on the job, a lot of observations. But most important thing was that I believe there are two key drivers to running a bank.

And that was where I made it a point to make sure I have the right people. See, a lot of people think that running a bank is about growing loan growth. I have a different philosophy. When I was a chief executive officer of RHB Bank, prior to that, as I said, when I was a deputy chief executive officer, I headed a deposit committee. The reason why I did that was at that point in time, when I took over the job, Malaysia’s loan growth in the banking system was in the high 20s to 30s. And when I came in, I looked at it, I said, “No, this cannot go on forever and I must slow down the growth and I must increase the deposit franchise.”

So I started with deposit committee and headed the committee, and RHB Bank’s loan to deposit ratio was 87% prior to the peak of that crisis in 1997. But it took me about nine months to a year to bring that down to 87% from a high of 108%, 115%. And I remember one of the board members told me, I think we cannot accept the targets that the new CEO has given. I was targeting a loan growth of 15%, but the prior years, it was about 25%.

And I remember one of the board members, said, “No, you will lose market share.” Then I said, “Guys, I don’t think I can sleep at night because I don’t think we can carry on like this.” And we had a very good chairman and very good shareholders, who said, “Well, we brought in this professional banker. We have to listen to her.” And I think when the crisis came and then the liquidity franchise was the key, I was proven right.

ED: Was being a woman any different in the board room and the influence that you had, given the fact that, at that point in time, Malaysia did not have a single woman CEO, and the governor wasn’t a woman yet either at that point in time? And the fact that you were coming back into the country after an international experience… did all of that make you an outsider?

YC: I was very conscious when I took on the role that I must not fail the women. It’s important that I hold it high and do it well, that there will be more opportunities for women as a result. It was a very conscious decision in my mind, and it still is today, that I must carry the flag. To be fair, overall developments across most boards have also been moving forward in the last few years. I would not say that I have any specific road to let open the door, but I think what I would imagine that I do have, in some small way, contributed to the fact that women can be trusted to hold responsible positions in tough environments.

And that they can also inspire teams and they can also get things going and gel, and they know how to read the environment, with the right intuition, and get things going.

ED: Now, let’s zero in on the institution that you’ve built at Hong Leong Bank. You built an institution that’s growing steadily—not fast, but steadily—and an institution that has erred on the side of return on equity (ROE) growth rather than on market share, for example, and kept very focused on specific product sets. Do you wish that you were able to grow faster than you are today?

YC: We have grown on a compounded basis for the last five years at 16% on a profitability basis. If you looked at the asset size, we have also doubled it in the last five years. When you looked at it from a standpoint of ROE, I think yes, we are one of the highest ROEs in the country, even though we are probably in terms of size number six, in terms of Tier 1 core capital ratio, we are the best in the industry. Now if you look at profitability from a risk adjusted basis, Fitch says that we are the top, ahead of even the bigger banks in the country. In itself, one would appear to say “wow, they are obviously very quality conscious.”

But I don’t think we are blindly just being quality without realizing the fact that as a very important middle-sized bank, we would not have dreams to scale. We have done very well in our consumer business, it has doubled our cards, our growth in mortgages, and in the overall consumer segment. In the credit cards, we are among the top three. In unit trusts, we are among the top three. Mortgages, we are among the top five. That growth has come across that we have been very much consumer oriented. The business banking side, we could do better. But our global market sets have done well.

We are always on the lookout for opportunities. I think in Malaysia, the organic growth is very compelling, but today we have reached a stage that I think we have to go regional. In organic growth, like the one that we see on the table, EON Bank is still work in progress. But we could have grown a lot more if we can say whether it’s true, organic or inorganic. But we believe in sensible valuations. We believe in value creation, especially when in an organic market.

ED: What is it like working for an entrepreneur, the chairman of the Hong Leong Group?

YC: Actually, it is interesting. I was just thinking to myself the other day that I’ve actually worked for two very strong entrepreneurs in Malaysia, both amazing men. And I’m very fortunate and actually honoured to have the ability to interact with them on a one-to-one basis.

ED: So what have you learned from them, and how are they different, one from the other?

YC: You see, like Tan Sri Rashid [Hussain, founder of RHB Bank] is obviously a very forward-looking man, who has—I would believe is one of those guys that have already foreseen that good talent is going to make the difference. If you look around today, the people that he had brought in the RHB Group before, each and every one of us have actually continued to sustain and carry his flag in various organizations as honchos. In the case of Tan Sri Quek [Leng Chan, founder of the Hong Leong Group], he’s amazing in the sense that the wisdom of his strategic thinking and his forward thinking, and when he has met somebody like us he probably could see certain things up to say three steps ahead, and somebody else could see ten steps ahead.

And when you have the ability to be in that environment, you grow yourself and you become wiser and you breadth and depth will grow.

ED: If you take the offer that’s on the table for EON Bank at the moment from Hong Leong Bank—and this is almost like a war of the titans as it were, the Malaysian conglomerate owners—you would even describe it as a very stingy offer, basically, in the sense that it is a very reticent offer, which the sellers would not be able to accept; not just because of shareholder valuation, but also for face value, in the sense that they would imagine that the franchise is a little bit more valuable than it is.

YC: No, I think that’s not a fair statement, I would say. I think if you look at the offer on the table, which I am not able to comment further on this, I could only say that we have given a fair valuation.

ED: How would you describe [Tan Sri Quek’s] personality in terms of his deal-making capabilities and the kind of deals that he puts on the table for his counterparts, his competitors? He’s a very ruthless negotiator, would you not say that?

YC: I would say that because it’s the belief in the group’s value creation and record that makes one convinced in believing in own intrinsic value built over the years. And by things that was, and focus on the core competence, and building the best out of your core competence. That’s what I believe is the guiding principle. And there’s one thing I have learned, is that when you do something, pick a few core competence and do the best, and the valuation process will take care of itself.

ED: And you believe that the offer on the table for EON Bank is a fair offer, and it’s something you can build a franchise with, if it became part of the Hong Leong group.

YC: Well, I think the offer would put a very compelling proposition for a bigger organization which would provide opportunities to shareholders, as well as our customers.

ED: Give us a sense of your growth back into a regional role. You’ve now acquired a stake in a bank in Chengdu and another in Vietnam. And that sort of makes you a regional banker all over again, like your days during Bank of America.

YC: Actually, I’ve very excited to talk about Bank of Chengdu. I wouldn’t say we are satisfied yet, but if there’s one story line that appeared where the trajectory is clear on its due course, it’s Bank of Chengdu. We were lucky to win over the likes of DBS when we bid for it. And then we got it, we told ourselves we have to make it work. The Chinese look at us from a standpoint of what we can bring to the table to bring them to the best practice for them to be able to scale and go into new markets and new segments and new products. So what we did was to put in a team of people at the board, as well as at the key decision making, which includes risk and product development, as well as finance.

And together with a technical fund, to ensure that enough resources and training programmes are given to their people over a three year period, we have trained over 1,200 of their people. We have got the risk officer, the finance officer and even data analytics, IT, treasury people, consumer people working alongside their people. And once we get the buy-in and they know we are genuine in terms of wanting to build value, they really execute well. I have to tell you, once they buy in, no one can come close to them when it comes to execution. We have seen that they moved the balance sheet to twice the size.

They have improved their NPL positioning to below 1%. The coverage ratio is a provision of over 300%. Their assets have reached over 100 billion renminbi. They’re contributing to about 12% of my profits now, and that is only when they’re just scratching the surface on consumer and treasury. Can you imagine when they scale up more in the market today after their recent pre-emptive measures? Start understanding that lending in China has to have more diversity and less concentration in corporate segments. I think there’s so much potential.

ED: Where is this China story going to take you and your bank going forward? Do you see yourself spending more time in China? Do you see it as an acquisition with a goal to sell the acquisition eventually?

YC: We always internally tell ourselves if we can replicate the way we see in China with any of our acquisitions, that would be a great story, especially in the region. Bank of Chengdu is in central western China, and the law only allows us to have 20% ownership. Of course, looking at the success and future potential, we’re always looking to see how we can increase our shareholding when the market opens precisely because of what we had done quite well. What has happened is that the government in China has given four new licenses for consumer finance in the whole of China.

They did one in the central southern region, two in Shanghai north-east region, and one in the eastern region south. And we were given the opportunity to start their consumer finance with Bank of Chengdu. So we have one of the four. So we have, together with Bank of Chengdu, a joint venture company on the consumer finance company. We just started a year ago.

ED: What are the risks of doing business in China? And some of these consumer finance subsidiaries that you’re allowed to set up, the major banks in China, have set up trust banks, trust companies, and sometimes it provides the opportunity to do things off balance sheet that you wouldn’t do on the banking front. Is there a concern?

YC: No, I think, Emmanuel, you’d be very surprised. I think China is very serious about revamping and reforming the banking industry. What I see from the things that they are pushing through, the reforms into the Bank of Chengdu that we see, we see that happening throughout China. And I think the China Banking Regulatory Commissions is very serious. I don’t see that people will do off balance sheet items like before. Those days, I think, are over. And they have made it very clear: for capital considerations, they give it time for them to clear that off. I think that won’t happen anymore. I think it was a thing of the past. When you look at what they are looking at in terms of the risk management, using technology and looking at the asset liability management, encouraging the banks to step up their expertise, and looking at them to diversify their earnings streams. These are very good moves. That’s where, I think, sustainable banking will have to rely on. Nothing else.

ED: As the CEO of an aggressive and growing domestic bank that’s now becoming very regional, what are some of your concerns in terms of the global themes that are coming through to affect your business? Basel III for example, and the whole discussion on liquidity at the BIS and at the G20 level. As someone who effectively has a regional franchise today, what are you concerned about?

YC: Many of the common themes that have come out since the crisis and all the noises that we hear about Basel III, there are two key common things. One is the liquidity premium. And I like to relate that to Hong Leong. See, a lot of people always say that “oh, they’re so conservative”. The loan to deposit ratio is very low. Today we are one of the most highly rated banks, precisely because we have capital buffers and we have a very strong diversified retail sustainable liquidity franchise. There are two things that are the two major reforms in Basel III: which is capital buffer—as well as real capital, which is Tier 1 capital, and not any form of hybrid—together with the size of the retail deposits. If you look around the world today, for the time being I see a lot of banks that have been looking at just pure asset loan growth, that are not looking at liability management. Personally, I think that is key: loans you can grow any time if you chose to loosen up your own standards a bit, but liability management, which is collecting deposits, takes years, and takes trust on the franchise.

ED: But liability management also is dependent on the extent to which you are able to hold onto your customer, especially in a highly competitive marketplace.

YC: Yes.

ED: How much work have you done to hold onto your customer? And what are you building in terms of the multiplicity of products you need to hold on to in order to stick on with USA as the bank of the people.

YC: If there’s one success story that we can share with you, it’s about our retail consumer and retail deposit strategy. We are very clear the thing for us is to first build trust. You know, integrity, trust in service is something I always believed. Now if the man on the street believes that he can trust you with his money, to either your actions and over the years, to the behaviour of my people on the ground, which is our ambassadors, whatever corporate branding that we do above that just cements it. The stickiness of that customer base is actually very evident for us, especially when I see generations of family members have more than two or three savings accounts with us.

So today I would say we have one of the strongest retail franchises. I think we have both industry share of our current account savings account (CASA) funding, of about 26%. The industry is at about 22%. That shows that people do have trust with us. We also measure our colleagues and the sales people on the ground, because at the end of the day we must be responsible that whatever we sell to our depositors into so-called AUM products, we must be responsible. Otherwise, can you imagine, when your deposit turns to nothing, they would remember you for life.

ED: Having said that, your fee-based income has still some upside potential to achieve. You can add on more fee-based products and you’re not exactly hitting the ceiling in terms of the amount of fees that you are able to generate from deposit-linked products and services. Do you see that you would need to do more work on that front?

YC: I would say the non-interest income for Hong Leong Bank, as a commercial bank, without a corporate investment bank in its operations, we have one of the higher non-interest income. If you take away the global markets, which is a treasury non-interest income, which can sometimes be volatile, we have a very stable transaction fee income of about 75% of that. So, no, I would say that we obviously have a lot more upside to work on. But I think for a commercial bank without an investment banking franchise and with relatively larger treasury assets in surplus funds, our non-interest income at about 26% today is in the higher quartile of the higher range.

ED: Given the fact that you are an attractive franchise yourself, and Malaysia’s banking industry is marginally overcrowded in that it could do with a little bit of consolidation, and as the government in Malaysia opens up the industry further, what’s stopping you from being an acquisition target yourself?

YC: First and foremost, we ourselves are always looking for opportunities to grow, not only just within the bank and within the group. If there’s one job that makes it easier for us, it’s the fact that we have got the resources from the shareholders to support the growth that makes sense. We have a lot of value creation that has to be done, and I believe, especially post-2008, there are a lot of potential partners in Asia, Australia, and even the West, we will keep our eyes open. Just for your information, a year ago, we were in Australia looking for a bank, and we were very close to it until, when we did some analysis, we realized that for a long-term value creation, there may be limitation.

Then we did not proceed. But it just tells you that we are open to markets.

ED: Your bank acquiring other banks.

YC: Yes.

ED: But what about a scenario where you become an acquisition target yourself?

YC: We still have value creation that has yet to be worked on, which I think there is a lot more we need to start acquiring. I don’t see that as an option at all for us at this moment.

ED: How much time do you spend in Malaysia, and how much time do you spend travelling to your various acquisitions to make sure that the business holds?

YC: For the time being, I would say I travel in Malaysia about 80% of the time, and 20% I would travel to China, Vietnam and Singapore and Hong Kong. Within the 80% of the time, there’s still 288 branches in about seven regions for me to visit. So that takes a bit of my time. But I think today, with the ability to do a lot more video conference, especially on strategic matters, we could do it on the phone. But, I should say, there’s nothing like meeting the people on the floor.

ED: And where’s your career heading? Do you see yourself being CEO of this mid-size bank for a long time to come? Or do you see yourself setting new targets and new goals in your own personal ambition?

YC: See, I always reflect and ask myself this. Well, what have I achieved? What had I done for Hong Leong Bank? And we always have got challenges, opportunities, projects, work in progress. I think today the three things I would say, as the CEO, I achieved this: today Hong Leong Bank is one of the quality, bigger mid-size banks [in Malaysia]. And, systemically, we are getting more important. Secondly, we have grown regional. We have gone into Vietnam and China, Singapore, Hong Kong. And thirdly, the most important thing which I think I’m proud of is the re-skilling and the bringing in of the talent to make us relevant from the time when we first started in 2004.

And those skill sets, that re-skilling, that talent that we brought in will lay the foundation for succession planning and for their own individual careers as well.

ED: But you are a professional CEO, who’s now worked with two conglomerates. What’s keeping you from pushing your own career forward?

YC: You see, when you ask yourself, and say, “What have you done?” And then there’s always never an end to work in progress. Having come from a regional background and having run two different banks, I would say that there was a third bank I ran as well. I ran Sime Bank for one year for the central bank (during the Asian Financial Crisis), concurrently as the CEO of RHB Bank. So all in all, I would say I’ve run three banks, and three banks had their own different levels of transformation.

One was a distressed bank; and this particular bank at Hong Leong that I’m leading today was a good bank when I went in, it’s just that it has to be a bit more relevant to the changing marketplace. And with this experience that I have developed, as well as engaged with the many talents that I interact with, they’re all very transferable to any of the emerging markets type of environment. If you look at Malaysian institutions, in a bank like Hong Leong, it’s like getting yourself relevant; in a bank like Sime Bank, it’s about getting out of distress.

In the case of RHB, it was trying to grow its position and totally transforming from a relatively small finance company to the third largest bank in Malaysia. Of course, I think there are a lot of opportunities out there, and it’s all about challenges and timing at the point of time, and obviously for someone like me, opportunities and looking at ideas, I’ve always been very open to that.